Thursday's session was dominated by central bank decisions and escalating Middle East tensions. The Bank of Japan held rates steady, with Governor Ueda striking a hawkish tone that briefly lifted the yen. Oil prices spiked more than 10% after attacks on energy infrastructure, driving sharp moves across G10 currencies.
The week's central bank decisions laid bare a clear divergence in policy tone. The BoE was the standout hawk – a unanimous 9-0 vote to hold at 3.75% alongside "stands ready to act" language marked the sharpest shift in tone in years, sending two-year gilt yields above 4.4% and prompting markets to price in around 60bps of hikes in 2026. The ECB was moderately hawkish, revising its 2026 inflation forecast up to 2.6% and keeping an April rate hike firmly on the table, with markets now pricing 50bps of rate hikes for the year.
Sterling was the clear beneficiary, surging 1% against the dollar, and GBPEUR climbed towards a 6-month high, hitting a clear resistance level. The dollar weakened broadly despite the elevated geopolitical backdrop, reflecting the market's view that the Fed is the least likely to act aggressively near-term.
*Daily move - against G10 rates as of 17:00 GMT, 19.03.26
** Indicative rates - interbank rates as of 17:00 GMT, 19.03.26
The Middle East conflict remains the dominant driver for G10 currencies, though headline risk has eased somewhat overnight – Brent crude has pulled back to $107 after briefly nearing $120, following Israel's announcement that it will no longer target energy infrastructure and that Iran is no longer able to enrich uranium. A welcome development, though prices remain elevated enough to keep inflation concerns live. The drop in oil alongside the assessment that the Fed are the least hawkish out of the BoE and ECB, has seen USD weaker this morning.
This week's central bank decisions crystallised the divergence in policy tone. The BoE was the standout hawk – a unanimous vote paired with "stands ready to act" language marked a dramatic shift in tone. The ECB was moderately hawkish, raising inflation forecasts and keeping April rate hikes firmly on the table, with Nagel's comments this morning reinforcing that message. The Fed, by contrast, struck the most cautious note, acknowledging it's too early to assess the war's full impact while holding to a tentative single cut this year.
The UK's fiscal position remains a lingering concern – February's budget deficit came in at £14.3bn against an £8.8bn consensus this morning, a miss that could put pressure on gilts and ultimately weigh on the pound if sustained. The Canadian dollar could find support if oil stays elevated, retail sales number are out later this afternoon. With central banks navigating a dual challenge of supply-driven inflation and slowing growth, expect volatility to persist.
Our team of currency experts are here to help you get more from your money when making international payments. We will work with you to understand your payment needs and offer specialised guidance on the best options available to you. Over the last 19 years we’ve helped over a million customers and last year alone processed over £12bn. We’re tried and trusted, and we’re ready to help you.
Have a great day.
